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Stagnant Wages -- The New Conundrum? "Credit News 24"

Why are wage increases almost non-existent in the developed world?  This question is asked, not only by Fed Chairperson Janet Yellen, but today's NYTimes has a detailed article that wonders aloud about why workers have done so poorly for decades.

This question has three very, very simple answers:

1) Growing federal, state, and local mandates on employers cost money.  Since the mandates relate to employees, these costs are "employee costs."  An employer views all costs of an employee, not simply the employee's wages.  Imagine that government taxes the employer $ 10,000 for each employee on the payroll.  The employer has to take that $ 10,000 into account when assessing the appropriate wage rate.  Generally, an employer will offer a significantly lower wage to an employee if there is an extra tax, say $ 10,000, per employer.  In the extreme, it is highly possible that the full $ 10,000 will come out of the employee's pay and show up as reduction in the employee's pay to make up for the tax.
The mandates imposed by various levels of government are enacted all the time.  Each year there are more mandates.  These 'labor costs" have to be paid by someone.  Mostly, they are paid by reducing the wages of employees.  For example, if you mandate paid sick leave for each employee, that will reduce the wage that can be offered that employee.  Not necessarily immediately, of course.  But, in time, such mandates reduce the potential for any wage increases and likely will reduce real wages over time, even in a growing economy.

2) Stagnant economic growth (less than 2 percent, for example), provides no real incentives to boost employee pay.  Employers are willing to add employees only if they are optimistic about the future (what Keynes referred to as "animal spirits").  The low levels of economic growth in the large developed economies in the last few decades, do not inspire businesses to boost wages in their hunt for employees. 

3.) Low unemployment rates mask the growing numbers of workers leaving the work force.  Every age demographic, except the 65-and-over demographic, show declining labor force participation.  This means that the welfare system is more attractive than working for a living.  Chalk that effect up to an over-generous welfare system.

My advice to Janet Yellen and other economists who are "puzzled" by the absence of wage increases is to go back to their undergraduate days and retake the introductory microeconomics course.

It is, after all, simple economics that explains wage stagnation in the US and the other developed nations.  It's not rocket science.
Title : Stagnant Wages -- The New Conundrum? "Credit News 24"
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